New Family Office Exchange Report Reveals Increased Allocation to Private Investments, Flat Investment Performance in 2018

CHICAGO, June 12, 2019 – Family Office Exchange (FOX), the industry-leading membership organization for families, family office executives, and trusted advisors, recently published the results of the 2019 FOX Global Investment Survey. Among the findings was family offices continued move into private investments—with a third of the overall portfolio allocated to Private Equity (17%) and Real Assets (16%). This allocation away from the traditional asset classes of equities and fixed income improved overall performance in a challenging year for stocks and bonds.

Although the average overall portfolio return was essentially zero (-0.2%), family offices were surprisingly satisfied with the results. Almost half stated that they were either "Very Satisfied” (18%) or “Somewhat Satisfied” (30%) with their 2018 investment performance; 41% said "Neither Satisfied Nor Dissatisfied" and only 11% said they were "Very Dissatisfied".

“Over a longer period of time, it is interesting to evaluate family offices’ performance relative to industry benchmarks, with family offices investing broadly across asset classes and along the liquidity spectrum,” said Kristi Kuechler, Managing Director of the Investor Market at Family Office Exchange. “Even after a tough 2018, family office returns handily exceeded the strong five-year returns generated from a US-focused stock/bond portfolio."

While traditional Asset Classes generated low or negative returns, Private Equity (both direct and funds) generated expected double digit returns in 2018 (11.1% Private Equity Funds and 16.8% Private Equity Direct). Given the significant dispersion between investors in public markets vs. private markets in 2018, it is no surprise that those families that had meaningfully higher allocations to Private Equity and Real Estate saw the highest returns.

Family offices continue to reevaluate traditional approaches to investing, highlighted by respondents’ accelerating interest in making direct investments in real estate and operating businesses outside of a fund. Of the 84% of families who make direct investments, 88% invest directly in real estate. Almost three quarters (71%) invest in operating businesses—outside of the core business, if there is one.

Other findings include:

  • Family offices continue to move away from a traditional "top down" asset allocation approach. In this year's survey, almost three-fourths (72%) of respondents said that they combine "top down" asset allocation with a "bottom up" (more opportunistic) method. That is up significantly from 54% who responded that they combine "top down" and bottom up" last year. This trend is likely driven by the increasing allocation to direct investments.
  • Another significant trend across the average allocations of the past four years is a continuing reduction in allocations to hedge funds (down from 12% in 2014, to less than 6% at the end of 2018).
  • Non-U.S. families generated significantly higher returns than U.S. families in 2018, +4.6% vs. -1.3%. The non-U.S. families had much lower allocations to Public Equity (42% for U.S. families vs 25% to non-U.S. families) and higher allocations to Private Equity (26% non-U.S. vs 15% for U.S. families).

This annual survey of investor attitudes and behaviors provides a peer perspective from family offices on asset allocation and investment performance. The average investable asset base of those completing the survey is $586 million, with 17% of respondents overseeing more than $1 billion of investable assets.

Just under half continue to have ownership of the original business that generated the family’s wealth (44%). More than three-fourth of respondents are led by Generations 1 and 2 (77%) and 82% of the family offices are headquartered in the United States. The Non-US survey participants have family offices that are headquartered in Australia, Belgium, Canada, the Caribbean, Chile, Mexico, Saudi Arabia, Spain, and the UK.

The survey was completed in January and February 2019 and asked about their allocations and performance as of December 31, 2018.

Click here to download the key insights.